Inflation-adjusted household income rose about 4% in 2023, driven by easing inflation and a strong labor market. This represents the first annual increase since the start of the pandemic and puts real income back at roughly 2019 levels, which represented a historical peak.
While U.S. households have experienced nominal wage gains in recent years, these gains were offset by a 40-year peak in inflation. But inflation eased significantly in 2023 while wage growth remained strong, returning households to the rising real incomes that characterized most of the past decade and boosting consumers’ purchasing power.
While this new data indicates relief for households, American consumers are still feeling the effects of pandemic-era inflation. The pinch of cumulative price increases and high interest rates have eroded savings and driven up credit card and auto loan delinquencies. Meanwhile, the newest Census data on poverty shows mixed signals in 2023. While the official poverty measure dipped 0.4 percentage points in 2023, the supplemental poverty measure, which accounts for a broader range of government benefits and expenses, ticked up 0.5 percentage points as pandemic-era social supports continued to expire. Looking ahead, economists expect that the Federal Reserve’s September 18th rate cut, perhaps the first of many, will consolidate the “soft landing” that the Fed has been targeting—reduced inflation and a still-healthy labor market—and energize economic growth.
